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Funding Transportation Needs in the North Central Texas Area
Funding Transportation Needs in the North Central Texas Area January 1987 Click HERE for graphic. FUNDING TRANSPORTATION NEEDS IN THE NORTH CENTRAL TEXAS AREA A Report Prepared for North Central Texas Council of Governments Transportation and Energy Department The Center for Applied Research School of Social Sciences The University of Texas at Dallas Richardson, Texas 75083-0688 January 18, 1987 [The preparation of this document was financed through a grant from and disseminated under the sponsorship of the Urban Mass Transportation Administration, U.S. Department of Transportation, and the United States Government assumes no liability for its contents or use thereof.] Acknowledgments In the work leading to this report, useful information and suggestions were received from Gordon Shunk, Bahar Norris and Paul Waddell of the North Central Texas Council of Governments. The Center for Applied Research in the School of Social Sciences at the University of Texas at Dallas coordinates the research activities of the School. This report was prepared by Irving Hoch, Kurt Beron, and David Merriman (faculty members in Economics); Jay Gilberg and Richard Straton (faculty members in Public Administration); and William Dixon (UTD Research Assistant). TABLE OF CONTENTS PART I INTRODUCTION AND SUMMARY 1 Study Goals 1 Alternatives to Revenue Increases 1 Relative Levels of Need and Revenue Potential 4 Coverage of Remainder of Report 6 Revenue Implications 10 PART II: DETAILED DISCUSSION OF REVENUE RAISING FINANCIAL DEVICES 17 The Financial Devices 17 I. ROAD USE DIRECT CHARGES 19 A. Toll Road Revenue 21 B. Electronic Road Pricing 34 II. JOINT PUBLIC-PRIVATE FINANCING 40 A. Development Impact Fees 51 B. Benefit Assessment Districts 64 C. Leasing or Sale of Development or Air Rights 71 D. Developer Contributions Through Negotiations 74 III. PARKING FEES, FINES AND TAXES 77 IV. LOCAL OPTION MOTOR FUEL TAXES 82 V. LOCAL SALES TAXES 91 VI. PROPERTY TAXES 100 VII. VEHICLE LICENSE FEES AND REGISTRATION FEES 117 VIII. NEW TYPES OF TAXES AND REVENUE SOURCES 122 A. Payroll Tax 125 B. Aviation Fuel Tax 128 C. Lottery 130 IX. BORROWING STRATEGIES 134 APPENDIX: HIGHWAY FINANCE EXPERIENCE IN CALIFORNIA 147 BIBLIOGRAPHY 162 PART I INTRODUCTION AND SUMMARY PART I: INTRODUCTION AND SUMMARY Study Goals The North Central Texas Council of Governments (NCTCOG) has estimated that $16.9 billion will be needed to fund the transportation developments called for in its "Mobility 2000" plan for the Dallas-Fort Worth area, but given the current tax and revenue structure, government agencies serving the NCTCOG area will have only $10.5 billion available for those facilities. Thus, a gap of some $6.4 billion occurs between discerned requirements and expected revenues.1 This study has the goal of developing information of help in closing that gap. Obviously, the gap can be closed either by increasing transportation revenues, directly or indirectly, or by decreasing requirements. The bulk of the effort of this study is directed to the first option, that of direct increases in revenue. This includes both increasing revenue from current sources and tapping new sources of revenue through a number of innovative devices. The alternatives to direct revenue increases are worth at least some attention, however. Alternatives to Revenue Increases The major indirect source of increased revenue is that of increased economic growth, generating more income than currently anticipated and consequently, more government revenue than currently projected. Transportation investment can be viewed as one of a number of instruments to promote economic growth, and investment decisions can be based explicitly on that criterion. Forkenbrock and Plazak2 note that 36 states explicitly take economic development into account in their highway programming activities, and report on those programs in some detail. Viewed across all states, the level of effort currently seems relatively modest. Of the 36 states with economic development programs, 15 simply incorporate development objectives within their highway programming -2- process. A few states, however, do have significant levels of funding for the activity, with four states spending roughly $10 million a year and Iowa spending close to $30 million a year on economic development through highway programs. Iowa's funds are obtained from a 2-cent motor fuel tax with proceeds dedicated to economic development. Eleven states have programs primarily directed to making industrial parks more accessible, supplementing local ant private funds in financing interchanges, frontage roads or other access roads. Matching funds are usually a condition for state contributions. Eight states have quick-response capabilities, used to expedite construction, for example by speeding review procedures and by making capital readily available. States operating under each of the program types are identified in Table 1. Reduction in requirements can occur indirectly, through the involuntary and painful effect of an unanticipated slowdown in economic growth. It can also occur through the exercise of policy options aimed at limiting the growth of highway traffic, including use of both non-price incentives and pricing. Natalie McConnell-Fay notes a number of non-price incentives currently employed in the San Francisco Bay Area to reduce traffic.3 The Metropolitan Transportation Commission, the regional planning organization for Bay Area transportation, has introduced a Traffic Mitigation Program which helps support such activities as the work of traffic coordinators at 300 large corporations, shuttles to rapid transit stations, subsidies for transit use, and car pooling. The traffic coordinators help business employees find alternatives to commuting to work in private cars. Those programs in effect involve subsidies to reduce private vehicle use. Alternatively, the direct charging of fees for road use can also be considered as a congestion reduction device. A recent special issue of Transportation Research 4 contains a number of papers on the implementation of such fees. The focus there is on the reduction of congestion, but such fees -3- Notes: a "Economic Development Objectives in Programming" means that the state specifically takes economic development into account in its capital programming process or has special highway programs to encourage economic development. b "Special Economic Development Funds/Bonding" means that the state has a categorical funding source or bonding authority for economic development or industrial park roads. c "Industrial Park Program" means that the state has a special program dedicated to constructing this type of road. d"Quick-Response Capabilities" means that the state has the ability to expedite economic development-related road projects. e Expedites environmental review for economic development projects. f Proposed "AHEAD" program, which has not yet passed in the state legislature. Source: Reproduced from Table 1 in David J. Forkenbrock and David J. Plazak "Economic Development and State Level Transportation Policy" Transportation Quarterly, Vol. 40, No. 2, April, 1986, pp. 148-149. -4- also can be important sources of revenue, of primary interest here. In particular, one of the devices considered is an electronic sensing mechanism that measures road use in particular areas, successfully employed on an experimental basis in Hong Kong. The discussion of that device will be drawn on later in this report, emphasizing its innovative application in raising revenue. Relative Levels of "Need" and Revenue Potential Although the six-billion dollar shortfall for the implementation of "Mobility 2000" obviously is a considerable sum, it can be argued that there are some mitigating features in the burden posed by that shortfall. First, many other states have considerably greater ratios of planned expenditures (or "needs") to expected revenues, so their relative funding gaps are greater than those of Texas. Second, local rates of taxation appear relatively low, compared to other jurisdictions of comparable population size. Of course, it is politically unpalatable to suggest increasing taxes; nevertheless, it seems worth noting that local tax rates currently are not "excessive", in relative terms. In turn, this suggests there is considerable potential for reducing or closing the "Mobility 2000" revenue gap. The evidence for these arguments is as follows. On the first point, evidence presented by Peter L. Shaw,5 reproduced here as Table 2, is pertinent. In a Congressional study, Texas' highway requirements from 1983 to 2000 were listed as $58.4 billion, contrasted with projected highway revenues of $52.7 billion. (The shortfall here, for the state as a whole, is less than that for the NCTCOG planning area, presumably because of lower projected needs or higher projected revenues in these figures than in those of "Mobility 2000".) The Texas ratio of needs to revenue is 58.4/52.7 or 1.11. For the U.S. as a whole, the ratio is 720,230/455,334 or 1.58. -5- TABLE 2 PROJECTED CAPITAL NEEDS, REVENUE, AND REVENUE SHORTFALL FOR CASE-STUDY STATES AND THE UNITED STATES, BY FUNCTION Click HERE for graphic. Source: Reproduced from Table IV in Peter L. Shaw, "The Surface Transportation Assistance Act of 1982: Short-term Hopes ant Long Term Implications", Transportation Quarterly, July, 1986, pp. 426-427. Originally appearing in U.S. Congress, Joint Economic Committee, Hard Choices, A Report on the Increasing Gap Between America's Infrastructure Needs and Our Ability to Pay for Them, Washington, D. C., 98th Congress, 2nd Season, Senate Print, 98-164, February 25, 1984, p. 57. -6- Evidence on the second point is furnished by research carried out by F. Jay Cummings.6 Cummings concludes that total state and local tax bills for the residents of Dallas, Houston and San Antonio are usually lower than those for other cities. Specific evidence that he presents, reproduced here as Table 3, shows that state and local tax bills for the residents of Dallas are generally the lowest of all 30 cities that he investigated. His data refer to tax rates as of 1978 and to city rather than metropolitan area taxes. However, more recent data show that Houston's state and local taxes per capita as of 1981 remained low relative to those of most large cities,7 and presumably the Dallas experience parallels that of Houston. It also seems plausible that taxes for metropolitan areas as a whole parallel those of their major central cities. No doubt, the absence of state income taxes is a major factor in the relatively low overall state and local tax burden for the residents of Texas. The relatively low burden likely still holds despite recent "temporary" increases in state sales and gasoline taxes for much of 1987.8 Coverage of Remainder of Report Following this introductory section, Part II develops information on financial devices that can be used to raise needed highway revenue, and projects expected revenue that can be obtained under each device. Because California is a trend-setting state, considerable attention is devoted to its current experience in highway finance and policy, with results drawn on both in Part II and in an appendix to this report. A bibliography concludes the report. The projections of Part II, of course, are estimates, and in some cases, relatively crude estimates; nevertheless, they should be useful in gauging potential sources of revenue to help close the "Mobility 2000" funding gap. The development of the projections is documented in some detail, and should point the way to more refined estimates, as needed. -7- Click HERE for graphic. -8- The coverage of the financial devices can be outlined as follows: I. Road Use Direct Charges A. Toll Road Revenue B. Electronic Road Pricing II. Joint Public-Private Financing A. Development Impact Fees B. Benefit Assessment Districts C. Leasing or Sale of Development Rights or Air Rights D. Developer Contributions Through Negotiations III. Parking Fees, Fines and Taxes IV. Local Option Motor Fuel Taxes V. Local Sales Taxes VI. Property Taxes VII. Vehicle Registration Fees VIII. New Types of Taxes and Revenue Sources A. Payroll tax B. Aviation fuel tax C. Lottery IX. Borrowing Strategies The organization of these categories represents a blending of several criteria, including directness of charges, likely feasibility and degree of innovation. Thus, the direct beneficiaries of highway improvements are highway users, with toll road pricing involving the most direct charge for use, followed by gasoline taxes, parking fees and fines, and registration fees for vehicles. But an improved highway system also implies benefits for developers and land owners whose land is on or near highways, yielding the rationale for such items as benefit assessment districts and expanded property taxes. Finally, all residents of a region with improved access share in the benefits of that improvement, making the case for the use of the sales tax, a payroll tax and a lottery as a source of revenue for highways. -9- A variety of political and administrative considerations affect the likely feasibility of various financing mechanisms. Certainly, borrowing strategies, which take advantage of institutional rules to maximize revenue, will be widely acceptable, since no taxation is involved in their use. Costs that fall on non-local residents, such as tolls on toll roads serving interstate traffic, will be popular. "Indirect" charges that are a component of a much larger cost item, such as impact fees, gasoline taxes and sales taxes, will have appeal, politically. Property taxes, on the other hand, because of their high visibility and discreteness of collection, are likely to be resisted. Finally, a major criterion guiding the efforts of this project was the investigation of relatively new methods of highway finance, accounting for the prominence given to toll roads, particularly electronic road pricing, and to charges based on the costs of increased traffic generation or to the capturing of some gains in land values due to new highways. In the body of this report, each of the financial mechanisms in the outline above will be covered, in turn. Coverage will consist of an overview of the device; when appropriate, additional discussion of the device, including both general information and case studies; revenue implications of the device for NCTCOG area highway construction; and a list of citations documenting information sources. Each overview covers the following topics: definition of the device; examples of its use; information on financial results of its use; and major issues involved in its use, including legal-administrative, political and economic issues. -10- Revenue Implications Table 4 summarizes the key results of this study by exhibiting the revenueimplications of each financial device, described in detail in the main body of this report. A number of items should be noted here, however, to clarify the entries in Table 4: (1) The geographic coverage aimed at in each case is that of the NCTCOG transportation planning area, which includes all of Dallas and Tarrant Counties, most of Collin and Denton Counties, and small sections of the other counties to the east and south of Dallas County, and to the west and south of Tarrant County.9 For some of the financial devices, because of data constraints, the geographic area referenced consists only of the four counties: Collin, Dallas, Denton, and Tarrant; however the geographic and economic coverage of those counties corresponds quite closely to the NCTCOG planning area. (2) Revenue figures are in "real" dollars as of the current price level, so they are directly comparable. No adjustment for inflation is necessary. (3) The projection period is from 1986 to the year 2010, a total of 24 years. In effect, this allows an additional 10 years to implement the goals of "Mobility 2000".10 (4) In obtaining each projection, the current level of annual revenue was estimated, and then current increments to that level were inferred under various scenarios. In turn, each current increment was multiplied by 24, the span of years from 1986 to 2010, to yield a "low" estimate -- the "Minimum Growth" case of Table 4. The "high" estimate, or the "Normal Growth" case of Table 4, was then obtained by multiplying the "low" figure by 1.5, to yield 36 times the annual figure. The estimate for 1.5 is based on a projection of growth in real income for the Dallas-Fort Worth metroplex from 1986 to 2010, which essentially involves a doubling of income. (To be precise, Year 2010 income/Year 1986 income equals 2.13.)11 An "average" figure for the period is then a "halfway" figure, or 1.5, setting the base year value at 1.0 and the terminal year value at 2.0, and assuming linear growth. Hence, accounting for "normal growth" in income, and in income related measures, is obtained by scaling base year entries by 1.5. (5) In comparing low and high projections, note that multiplication of the "current level" annual figure by 24 yields a projection that assumes the current level of revenue is unchanged. The result furnishes a useful benchmark. But in some cases, the current level is based on a total, and in some cases, the current-level is based on an increment accounting for an annual change or amount of growth. The two sets of numbers are fully consistent only if there is a proper accounting for growth, as occurs in the "high" projections, which can be viewed as the -11- TABLE 4 SUMMARY OF REVENUE ESTIMATES Estimated Total Revenue Increment 1986-2110 in Millions of Dollars* Source of Revenue "Minimum Growth" "Normal Growth" Case (low) Case (high) I. ROAD USE DIRECT CHARGES A. Toll Road Revenue Increased tolls, per mile of new tollway 31 47 per 50 miles of new tollway 1560 2340 Increase current toll from 5¢ to 10¢ per mile of existing tollway 49 74 B. Electronic Road Pricing 1¢ per vehicle mile of travel (VMT) on freeways 2880 4320 1¢ per VMT of peakload on freeways 1152 1728 II. JOINT PUBLIC-PRIVATE FINANCING Charging For Costs of Increased Traffic and/or Capturing Some of Land Value Appreciation from New Highways A. Development Impact Fees Residential, $100 per Unit 177 265 Office, $1 per square foot 312 468 Retail, Commercial $1 per sq ft. 240 360 Industrial, 20¢ per square foot 72 108 801 1201 B. Benefit Assessment Districts Limited to Dallas CBD 204 306 Other areas 276 414 480 720 C. Leasing or Sale of Development Rights or Air Rights 500 750 D. Developer Contributions Through Negotiations Transportation corpo- rations, ad hoc negotiations, contributed right of way, and infrastructure 500 750 Totals: There is overlap in the coverage of these cases, so if all were implemented, the totals would be lower, probably: 1500 2250 Additional Note: Relatively low fees and rates were employed in above estimates. It would be possible to consider doubling those fees and rates to yield: 3000 4500 *Note: These are selected from a wider range of estimates presented in the body of this report, with the aim of "reasonableness" of estimates. -12- TABLE 4 ( continued) SUMMARY OF REVENUE ESTIMATES Estimated Total Revenue Increment 1986 -2010 in Millions of Dollars Source of Revenue "Minimum Growth" "Normal Growth" Case (low) Case (high) III. PARKING FEES, FINE AND TAXES A. Minimum Estimate -moderate expansion of metering in Dallas, 12 18 none in Fort Worth B. Maximum Estimate 600 900 IV. LOCAL OPTION MOTOR FUEL TAX A. Local Excise Tax 1¢ per gallon 480 720 1¢ per gallon 960 1440 B. Local Sales Tax on Motor Fuel 1% tax 360 540 V. LOCAL SALES TAX A. Share of DART 1% Sales Tax one-twentieth share highways 186 281 B. General Sales Tax (local 1% rate) add 0.25% for highways 1710 2526 C. Expand Sales Subject to Sales Tax from 30% to 100%, on additional 70% subject to tax apply 0.10% to highways 1620 2430 apply 0.25% to highways 4050 6075 VI. PROPERTY TAXES A. Increase County Property Taxes by 5% 192 288 B. Bring County Road and Bridge Property Tax to State Average 194 292 C. Appraise and Tax Motor Vehicles in County Property Tax, appraised value per Vehicle - 1736 158 237 D. Increase City Property Taxes by 5% 633 950 -13- TABLE 4 (continued) SUMMARY OF REVENUE ESTIMATES Estimated Total Revenue Increment 1986-2010 in Millions of Dollars Source of Revenue "Minimum Growth" "Normal Growth" Case (low) Case (high) VII. VEHICLE REGISTRATION FEES A. General Registration: Payments to Counties in proportion to payments paid 437 655 B. County Road and Bridge Fee: Increase registration fee from $5 to $10 350 525 VIII. NEW TYPES OF TAXES AND REVENUE SOURCES A. Payroll Tax 0.1% tax on payrolls 720 1080 0.1% tax on payrolls 2160 3240 B. Aviation Fuel Tax 1¢ per gallon 168 252 1¢ per gallon 336 504 C. Lottery - (All net proceeds to highways) 890 1335 IX. BORROWING STRATEGIES Arbitrage Under New Federal Tax Law 60 60* Arbitrage Based on Return to Earlier (in force as of 1986) Legal Provisions 240 240* * Based on $6 billion NCTCOG revenue gap; hence, high and low values here are the same. -14- result of "normal" growth. To expand on the point: sales tax revenue is based on current total sales, which if unchanged, imply zero growth in the Dallas-Fort Worth economy. In contrast, impact fee estimates assume impact fees are imposed on new construction, which in turn implies that recent growth rates continue unchanged. (6) The timing of revenues collected has not been addressed beyond the implicit assumption that current annual revenues continue at the same rate, or alternatively, increase in linear fashion. However, if revenue collection is subject to time differences, interest rates and discounting come into play: a dollar today is worth more than a dollar tomorrow, and the difference depends on the interest rate. Revenues collected early are worth more than revenues collected late. Hence, the flow of revenues can greatly affect the real level of total revenues collected. This issue is addressed in this report, in part, by the consideration of borrowing strategies at the conclusion of the report. However, additional work addressing this issue would be worthwhile. (7) In Table 4, there is overlap in some of the cases (in particular, see the figures on joint public-private financing). Of more importance, it is hardly likely that all, or even a large number of the scenarios will be implemented jointly. However, the results do suggest that a judicious mix of several of the financial devices should yield enough returns to close the revenue gap. In particular, some sense of the magnitude of prospective revenue under each of the projections can be obtained by selecting a "most reasonable" revenue scenario for each financial device and then obtaining the revenue total. Admitting the relative arbitrariness of the approach, the enumeration on the next page exemplifies the results that can be obtained in this manner. The scenario employed for each case is shown in brief fashion. From the enumeration it can be seen that the combination of scenarios selected, even for the low (or minimum growth) case, yields revenues above the $6.4 billion needed to close the "Mobility 2000" revenue gap. Part II of this report, which follows the present introductory section, consists of a detailed discussion of the financial devices, covering each in turn. -15- Source of Revenue Scenario Revenue in (Financial Device) Million Dollars Low High I. Road Use Direct Charges 25 miles of new tollway 780 1170 II. Joint Public-Private Use all options Financing recognizing overlap 1500 2250 III. Parking Fees, Half of maximum Fines and Taxes estimate (III B) 300 450 IV. Local Option Local fuel tax at Motor Fuel Taxes 1¢ per gallon 480 720 V. Local Sales Taxes Add 0.125% for highways 855 1283 VI. Property Taxes Use all options 1177 1767 VII. Vehicle Registration Fees Use all options 787 1180 VIII. New Types of Taxes Aviation fuel tax and Revenue Sources at 1¢ per gal. 168 252 Lottery - half of proceeds 445 668 IX. Borrowing Strategies New federal tax law (low), partial return to old law (high) 60 120 Total 6552 9860 -16- Notes to Introduction and Summary 1. North Central Texas Council of Governments, Mobility 2000: The Regional Transportation Plan for North Central Texas, Arlington, Texas, May, 1986, 7. 2. David J. Forkenbrock and David J. Plazak," Economic Development and State-Level Transportation Policy", Transportation Quarterly, Vol. 40, No. 2, April, 1986, 143-157. Also see David J. Forkenbrock, "Highway Revenues and Expenditures: Some Emerging Policy Directions at the State Level", in Lester A. Hoel, Editor, Innovative Financing For Transportation: Practical Solutions and Experiences, Office of the Secretary of Transportation, U.S. Department of Transportation, Washington, D. C., April, 1986. (DOT-1-86-20). 3. Natalie McConnell-Fay "Tackling Traffic Congestion in the San Francisco Bay Area", Transportation Quarterly, Vol. 40, No. 2, April, 1986, 159-170. 4. Transportation Research - A, General, Vol. 20A, No. 2, March 1986, Special Issue Devoted to Road Pricing. 5. Peter L. Shaw, "The Surface Transportation Assistance Act of 1982: Short-term Hopes and Long Term Implications," Transportation Quarterly, Vol. 40, No. 3, July 1986, 411-432. 6. F. Jay Cummings, "State and Local Tax Bills: How Do Residents of Large Cities Fare?" Texas Business Review, Vol. 56, No. 1, Jan., 1982, 34-39. 7. U.S. Bureau of the Census, Statistical Abstract of the United States, 1984 edition, Table 485, "Estimated State and Local Taxes Paid by a Family of Four in Selected Large Cities, by Income Level: 1981," p. 302. 8. In 1986, in response to fiscal concerns, the Texas Legislature increased state sales taxes from 4.15 to 5.25 cents per dollar of taxable sales, and gasoline taxes from 10¢ to 150 per gallon, for the period Jan. 1 to Aug. 31, 1987. Many observers expect these increases to be extended beyond August 31, 1987, with increases in other taxes possible. It nevertheless seems plausible that total state and local taxes will remain below levels elsewhere, given an apparent reluctance to institutestate income taxes. 9. The NCTCOG transportation planning area is shown in a map appearing in North Central Texas Council of Government, Mobility 2000; that planning area is essentially the same as the NCTCOG policy planning area, with the later area shown in North Central Texas Council of Governments, Population and Employment Projections by City, June 1984. 10. This assumption was suggested by NCTCOG. 11. Data Resources, Incorporated (DRI), Forecast of Revenues from the Dallas Area Rapid Transit Tax: State and Local Government Practice, May 1986, Tables 3 and 4. Some caution must be employed in using the DRI data, because many of their series build in a projection of inflation. Thus, for the year 2010, "nominal" income is projected as 7.235 the 1986 level, with 3.405 accounting for inflation, and 2.125 for growth in real income (2.125 x 3.405 = 7.235). PART II DETAILED DISCUSSION OF REVENUE RAISING FINANCIAL DEVICES -17- PART II: DETAILED DISCUSSION OF REVENUE RAISING FINANCIAL DEVICES The Financial Devices This part of the report discusses the financial devices that can be used to increase highway revenues, covering each device in turn. There are nine sections: I. Road Use Direct Charges II. Joint Public-Private Financing III. Parking Fees, Fines and Taxes IV. Local Option Motor Fuel Taxes V. Local Sales Taxes VI. Property Taxes VII. Vehicle Registration Fees VIII. New Types of Taxes and Revenue Sources IX. Borrowing Strategies Each section begins with a one page overview or set of one page overviews describing each device or set of mechanisms subcategorized under each device. The overviews appear in distinctive single space format to set them off from the rest of the text. Each overview contains a definition of the device, examples of its use, information on the financial results of its use, and major issues involved in its use, including legal-administrative, political and economic issues. The overviews are followed by detailed discussions which contain general or background information, case studies, revenue implications, and a list of sources drawn upon in the discussion. The "revenue implications" subsections exhibit estimates for current revenue, if any, that the device contributes for highway use in the NCTCOG planning -18- area, and potential current revenue on an annual basis. Then low and high estimates are obtained for total revenue over the period 1986-2010 by respectively multiplying current annual revenue by 24 and 36; the rationale for these multiplications is developed above in Part I. Table 4 of Part I summarizes the revenue increments achievable by employing each device, and is useful for comparative purposes. As noted on the basis of that table, and as developed in detail in this part of the report, the potential for closing the "Mobility 2000" revenue gap does indeed exist. -19- I. ROAD USE DIRECT CHARGES I.A TOLL ROAD REVENUE Overview Definition The use of revenues from the sale of bonds backed by tolls collected from the users of roads, tunnels and bridges to pay for these facilities. The toll revenues may be supplemented by public funds. Examples Dallas North Tollway, Dallas, TX Richmond Expressway System, Richmond, VA South Crosstown Expressway, Tampa, FL Financial Results The range of toll revenues for the examples above in 1984 varied from $5.6 to $20.7 million annually. Supplemental receipts from bond sales, investments, rentals and concessions, and miscellaneous bring the total revenues into the range of $13.6 to $32.3 million annually. Passenger car rates per mile on rural toll roads typically are on the order of 2 cents per mile; urban toll roads often charge considerably more, ranging from 5 to 10 cents per mile. Generally, toll roads are considered to be substantial revenue producers. Overhead usually is low. Major Issues Legal/Administrative The establishment of a governing authority requires state-enabling legislation, but once in place, administration is generally efficient due to the authority's independent status. However, it is difficult in urban areas to control toll facilities that have access every mile or so. Political Public acceptance is necessary for toll road use and such roads must serve high demand corridors and provide a faster and/or more convenient alternative to a free facility. Toll road development, moreover, generally requires detailed advance planning and avoidance of competition with existing highway systems. Since most urban areas already have existing facilities, this often precludes a toll road. Economic Toll road financing can be viewed as an efficient and equitable financial technique because it is a user fee that charges the direct beneficiaries for their use of the facilities, and it charges similar vehicles an identical charge. -20- I.B ELECTRONIC ROAD PRICING Overview Definition Computerization and improved methods of communication make possible the electronic collection of toll information, with billing of road users at the end of a payment period (usually a month), in the same fashion as credit card billing. Examples 1) Coronado Bridge "Automatic Vehicle Identification" (AVI) Experimental System, California 2) Pilot study in Hong Kong, 1983-85 Financial Results 1) The Coronado Bridge system is an experimental project of the California State Department of Transportation. Bridge crossings are recorded electronically and vehicle owners are later billed for total crossings in a given period. Potential savings are 10% of toll collection costs by way of replacement of toll collectors, and considerable reduction in congestion because of minimal delay in passing through the toll collection point. 2) In the Hong Kong Pilot Study, there were a total of 200 zones, with vehicles charged electronically every time they crossed a zone boundary line. Tolls charged per zone ranged from 10¢ to $1.50 (U.S. dollars); presumably, a typical trip involved crossing only a few zone boundaries. Results were deemed very successful, both in terms of reducing traffic congestion and raising revenue. Major Issues Legal/Administrative In the Coronado Bridge case, there have been some technical problems in fitting cars with electronic sensors. Billing also poses questions. Charges could be collected through credit cards, or if that fails, through adding costs to vehicle registration fees. Political Privacy is an issue, given the collection of data on vehicle movements, particularly in the Hong Kong type of system. However, there was sensitivity to that issue in the Hong Kong experiment; for example, information listed on bills was limited if vehicle owners so requested. Economic Toll authorities around the world have been investigating the potential for electronic billing for some time. Major use of the system seems likely soon. Hong Kong is likely to introduce a permanent system by the end of the decade. The Hong Kong system makes use of small, inexpensive, robust solid state sensors attached to cars, and inexpensive microcomputers to carry out the billing. -21- IA. TOLL ROAD REVENUE Detail General Information Since 1916, the federal government with few exceptions has prohibited the levying of tolls on roads built with federal aid. Most of the 5,000 miles of toll roads, therefore have been funded through tax-exempt borrowing in the bond market. It has been estimated that the collection of tolls costs on average 14 percent of revenues versus collection costs of 7 percent for highway user taxes for the average state. Additionally, capital costs can be raised 5 to 30 percent by having to finance debt through the municipal bond market. Offsetting these costs are the benefits of (1) earlier construction of needed highways that otherwise would be delayed due to budget constraints and (2) a fairly certain revenue stream to maintain the roads. Despite these benefits, the Congressional Budget Office estimates that less than 10 percent of existing urban interstate highways could financially support a tollway, and this is considered an indicator of limited potential for new toll roads. Nevertheless, a number of toll roads, including the Dallas North Tollway, are currently financially successful. C. Kenneth Orski argues that after years of languishing in semi-obscurity, toll roads are re-emerging as a serious fiscal alternative, even though modern toll roads require volumes of 50,000 vehicles per day. Such volumes now seem attainable on busy commuter highways. Thus, the Dulles Toll Road, paralleling the Dulles Airport access road in suburban Washington, D. C., had a daily volume of 60,000 vehicles within six months after opening. Further, most planned new -22- toll roads are commuter highways, including the Hardy Toll Road in Houston, the Jacksonville Expressway, the North Atlanta Toll Road and the Dallas North Tollway extension. There are two proposed revisions of federal law that might make toll roads financially more viable. H. R. 4144, legislation submitted by the Reagan Administration, contains a provision that would allow federal funds to be used for new toll roads or for reconstructing existing toll roads. Federal financial participation of up to 90 percent would be allowed as per current law. Previously existing non-toll roads would not be eligible. Additionally, the bill would allow collection of tolls after all nonfederal obligations have been paid, subject to the revenue being used for toll road maintenance or other public highway construction projects. More expansive legislation recently introduced would allow federal aid to be used both for new toll roads and existing roads constructed with federal aid. H. R. 3473 and S. 1488 allow toll revenues to be used after repayment of debt obligations for highway construction or for mass transit or bridges. Unlike the administration bill, however, federal financial participation would be limited to 50 percent of project costs. Table 5 lists information on current U.S. toll roads by location, length in miles, average toll rate per mile for passenger cars, and number of vehicle miles as of 1983. Case Example - Illinois The Illinois toll highway system is made up of three toll roads consisting of 256 miles of roadway, excluding a toll road that Chicago operates separately. A new 17.5 mile toll road is scheduled for construction beginning in 1986 with its opening planned for 1988 or 1989. -23- TABLE 5 U.S. TOLL ROAD INFORMATION Passenger Car Average Vehicle Length Rate Per Miles in State and Toll in Mile Millions As Facilities Miles in Cents of 1983 Connecticut Connecticut Turnpike 129.0 2.2 2.018.9 Merrit Parkway 37.0 0.9 810.2 Wilbur Cross Parkway 26.6 1.3 Delaware Delaware Turnpike- 11.2 6.7 155.4 JFK Memorial Highway Florida Airport Expressway 4.4 5.7 --- Beeline Expressway 17.4 2.9 --- Beline East 15.0 1.3 --- Beeline West 9.0 2.2 --- Bucaneer Trail 15.0 9.4 --- East-West Expressway 2.0 12.5 --- Everglades Parkway 78.0 1.0 --- Florida’s Turnpike 265.0 2.4 1,763.6 Holland East-West 13.8 1.8 --- South Dade 8.0 1.3 --- West Dade Expressway 50.0 1.8 --- Tempa South Crosstown 9.3 5.4 --- Illinois Tri-State Tollway 77.0 3.1 Northwest Tollway 76.0 2.6 3,384.9 East-West Tollway 96.0 2.8 Indiana Indiana Toll Toad 156.9 3.0 776.9 Kansas Kansas Turnkpike 236.0 2.8 592.4 -24- TABLE 5 (continued) U.S. TOLL ROAD INFORMATION Passenger Car Average Vehicle Length Rate Per Miles in State and Toll in Mile Millions As Facilities Miles in Cents of 1983 Kentucky Audubon Parkway 23.4 2.1 26.4 Blue Grass Parkway 72.1 1.8 119.7 Cumberland Parkway 88.5 2.3 62.2 Daniel Boone Parkway 62.7 2.2 70.7 Green River Parkway 70.2 2.1 69.7 Jackson Purchase Parkway 52.6 1.7 42.5 Mountain Parkway --- --- 123.1 Pennyrile Parkway 59.0 1.7 104.9 Western Ky. Parkway 137.0 1.6 182.9 Maine Maine Turnpike 106.0 2.5 537.1 Maryland JFK Memorial Highway 43.0 2.3 647.4 Massachusetts Mass. Turnpike 123.0 2.9 1,630.9 Boston Extension 12.0 6.3 --- New Jersey Atlantic City Expressway 44.0 2.3 528.0 Garden State Parkway 173.0 1.6 3,855.1 New Jersey Turnpike 118.0 2.3 3,205.5 New York Thruway Berkshire Section 24.0 2.1 Erie Section 70.0 2.4 4,658.2 Main Line Section 465.0 2.0 Ohio Ohio Turnpike 241.2 2.0 1,648.0 Oklahoma Cimarron Turnpike 67.7 2.1 Indian Nation Turnpike 105.2 2.4 Muskogee Turnpike 53.1 2.4 1,212.0 Turner Turnpike 86.0 2.3 Will Rogers Turnpike 88.5 2.3 -25- TABLE 5 (continued) U.S. TOLL ROAD INFORMATION Passenger Car Average Vehicle Length Rate Per Miles in State and Toll in Mile Millions As Facilities Miles in Cents of 1983 Miles Pennsylvania Pennsylvania Turnpike 470.0 2.3 3,136.1 Texas Dallas North Tollway 10.0 5.0 194.5 West Virginia West Virginia Turnpike 88.0 4.3 299.7 Ohters New Hampshire Blue Star I-95 Turnpike --- --- 245.1 F.E. Everett Turnpike --- --- 414.2 Spaulding Turnpike --- --- 116.6 Virginia Richmond Expressway --- --- 92.7 Richmond-Petersburgh Tpk. --- --- 676.6 Va. Beach-Norfolk Expwy. --- --- 405.8 Dulles Toll Road --- 7.0 --- --- Information not readily available. Sources: International Bridge, Tunnel and Turnpike Association (IBTTA), Toll Rates Survey: U.S. & Canada Roads, Washington, D.C., July 1985, and IBTTA, Turnpike Accident and Fatality Report, 1982-1983, Washington, D.C. April 17, 1984. U.S. Congressional Budget Office, Toll Financing of U.S. Highways; Washington, D.C., October 1985, p. 46. -26- The Illinois toll road system is operated by a single agency, the Illinois State Toll Highway Authority, which is independent of both the federal and state departments of transportation. The Authority is fully mandated to build and operate toll highways in the state, including the power to issue and sell bonds to finance all costs associated with the toll highways. All bonds must be backed solely by projected toll revenue with no support by the state or any locality. (This is also the situation in Texas with the Texas Turnpike Authority). At the end of 1984, the Authority had issued $628,450,000 in bonds since 1955 of which $364,999,000 had been retired. Revenue information for calendar year 1984 includes the following: Toll revenues $157,327,494 Revenues from concessions, interest, overweight tickets, miscellaneous 4,780,891 Total operating revenues 162,108,385 Total maintenance and operating expenditures 56,639,136 Net operating revenues 105,469,249 The net operating revenues are required by the bond resolution to be dedicated to five different accounts which are, in order of priority: Maintenance and operating, interest, interest reserve, sinking fund, and general reserve. The general reserve fund is used to maintain and rehabilitate toll roads and accounted for $58 million in expenditures in 1984. The Authority chooses construction companies through an open bidding system. Cost overruns have been kept quite small due to the expertise that the Authority has developed over 25 years of experience, close monitoring of construction and a set of incentives designed to keep the contractor on schedule. The incentives include $5,000 a day in bonuses for up to 20 days early completion and $15,000 a day in penalties for each day the project comes in late. -27- The enabling state legislation requires that the toll highways become free when all bonds and interest have been paid or the amounts necessary to do so have been put in reserve. The state department of transportation would then assume responsibility for the roads' operation and maintenance. This situation is not expected to occur before the year 2008. Toll rates are set based on the annual rehabilitation plan of the Authority and on the semi-annual estimates of traffic engineering consultants. Revenues generated from tolls are invested in United States Treasury obligations. Case Example - Florida Florida has 13 toll roads which encompass 552 miles of highway, with the longest road, the Florida Turnpike, extending 321 miles. There is one additional toll road under construction which will add another 23 miles to the total. There are nine management structures that operate the various toll roads, unlike Illinois where one authority operates the state toll system, with the Florida Department of Transportation (FDOT) operating the Florida Turnpike. The other toll road managers are composed of either counties or independent authorities created by state legislation. Since 1955, bonds totaling $1,013 billion have been issued in Florida for the financing of toll roads. Previously, once all indebtedness had been satisfied, a toll road became a free road in the state highway system. The Florida legislature changed this in 1985 so that tolls may be continued even after all obligations have been repaid. The resulting revenue may be used to build additional toll facilities or finance other transportation facilities. Unlike Illinois or Texas, Florida's toll road bonds are backed by toll revenue and the full faith and credit of the state or county. This latter provision -28- increases the marketability of the bonds by reducing the risk of default and lowering financing costs. In essence, if toll revenue is not sufficient to pay off debt obligations, then state transportation funds may be used to make up the difference at the state level, and the county's portion of the state gasoline tax may be used at the county or authority level. In the worst case, the state's general revenues are available for emergency repayments. In 1984, the financial situation for Florida's toll roads was as follows: Toll revenue $120,285,000 Revenues from concessions, interest, overweight tickets, miscellaneous (excluding bond receipts) 39,020,000 Total operating revenues 59,305,000 Total maintenance and operating expenditure 36,908,000 Net operating revenues 122,397,000 The operating revenues have not been sufficient in recent years to pay off interest costs or for annual payments to retire the obligations. Thus, the pledge by the state and county to back debt repayment has been used by a number of toll managers. As of June 30, 1985, approximately $175 million was owed to the Florida Department of Transportation and the counties. The FDOT has sought to put this into perspective by noting that it would cost $2 billion to purchase the rights-of-way and construct the toll roads today and that future revenues are expected to increase as traffic increases over time. In addition, the alternative of increasing toll rates would likely lead to decreased traffic and reduced revenues. Potential for Increased Revenue, Toll Roads Per Mile of New Toll Road Constructed (with current tolls) The Dallas North Tollway is 10 miles in length and will add 7.4 miles shortly. Annual earnings currently more than cover annual costs, consisting of operating costs and interest on bond debt, which accounts for construction costs. The good -29- experience reflects high return on investment of revenue from the bonds. Annual costs per mile of tollway are approximately 1.3 million dollars per mile (covering both operating costs and interest on debt). It seems reasonable to assume that considerable expansion in toll roads can take place at that cost, with annual revenues at least covering annual costs (even though interest from investment will decline as new construction takes place). The estimates here are based on the Texas Turnpike Authority's 1986 financial statement for the tollway. For the fiscal year ended June 30, 1986, costs and toll revenue were approximately in balance, as follows: Toll revenues - $13.4 million Operating costs - $ 3.4 million Interest on tollway debt - $10.2 million Hence, given the 10 mile length of the tollway, both earnings and total costs are approximately $1.3 million per mile. (Note that costs include interest but exclude principal.) However, the tollway also earned $10.7 million from its investments, making it quite profitable - at least in 1986 (with a profit of $10.7 million on total revenue of $24.4 million). But earnings from investments can be expected to decline, both because some of those invested funds will be used to pay for extending the tollway, and because the new federal tax law will likely limit returns on investments made with bond revenue. To be cautious, it can be assumed that new tollways will earn no revenue on investment and will exactly pay for themselves at $1.3 million per mile. This yields the following revenue estimates. -30- ______________________________________________________________ Revenue in millions of dollars Current Increment Level Annual Projected over Source of Revenue (Annual Current 24 years to 2010 Total) Level Low - High - Annual Annual x 24 x 36 ______________________________________________________________ Additional Toll Roads at current Tolls Per mile of additional tollway 1.3 1.3 31 47 Per 10 additional miles --- 13 310 470 50 additional miles --- 65 1560 2340 It is worth noting that the Trinity Tollway, if built, will be 50+ miles. Revenue Per Mile of Tollway with Increased Tolls The Dallas North Tollway charges passenger cars 5¢ per mile. Most rural tollroads charge passenger cars 1.5¢ to 3.0¢ per mile, with charges clustering around 2.2¢ per mile. Charges for trucks typically run 2 to 3 times the passenger car toll. Some urban toll roads charge more than 5¢ per mile, including: Florida - Airport Expressway - 5.7¢ Buccaneer Trail - 9.4¢ East West Expressway - 12.5¢ Delaware - JFK Memorial Hwy. - 6.7¢ Massachusetts - Boston Extension of Mass Turnpike - 6.3¢ Virginia - Dulles Access Toll Road - 7.0¢ If toll rates are raised, available evidence indicates some loss in traffic volume, so total revenue will not rise proportionately, although it will increase. The analysis runs as follows. From 1976 to 1982, a period of 6 years, average daily vehicle trips on the Dallas North Tollway increased from 51,900 to 85,500. The percentage increase was 65%. During that period, because of inflation, the real value of tolls collected per trip dropped by about 40%. On the basis of long term trends in use, the effect of the price drop was -31- established as leading to a 20% increase in vehicle use, with 37.5 percent having been explained as due to the increasing time trend in use (that is, 1.65/1.375 = 1.20). The time trend effect equaled about a 5 percent increase in use per year, presumably reflecting more intensive land use and trip generation, trip pattern change, etc. In 1982, the toll was doubled and vehicle trips decreased to about 78,000 as of 1985. If the trend had continued, vehicle trips in 1985 could be expected to have been around 100,000. The decrease between the expected value of 100,000 and the actual value of 78,000 was consistent with a doubling of price, given the originally established price effect. In technical terms, a price elasticity of -0.35 was estimated from the data, being consistent with both sets of changes. That is, the price elasticity estimate obtained was consistent both with the effect of the real drop in price in the earlier period, and that of the real increase in price in the later period. This price elasticity attributes greater impact to a price change than does anelasticity estimate of -.18 derived by Wilbur Smith and Associates in a 1985 study of the Dallas North Tollway. The consequence of the price elasticity estimate of -0.35 is that a 50 percent increase in price leads to only a 30 percent increase in revenue because of a decline in use of 13 percent (that is 1.5 x 0.87 = 1.305). Similarly, a doubling in price can be expected to lead to only a 57 percent increase in revenue. Given an estimated return of $1.3 million per mile for a 5¢ toll, a 50 per cent price increase to a 7.50 toll will yield $1.7 million per mile (1.3 x 1.305 = 1.7) for a net gain of $0.40 million. Similarly a doubling of the toll will yield a net gain of $0.75 million. Estimates were obtained throughout assuming a relation of the form Q=KP-.35 where Q is quantity, P is price and K is a constant.) Summarizing these results then, the following estimates are obtained: -32- _____________________________________________________________ Revenue in millions of dollars Current Increment Level Annual Projected over Source of Revenue (Annual Current 24 years to 2010 Total) Level Low - High - Annual Annual x 24 x 36 ______________________________________________________________ Increases in Tolls Revenue per mile of tollway - 5¢ toll 1.3 --- --- --- - 7.5¢ toll --- 0.40 9.6 14.4 - 10¢ toll --- 0.75 18.0 27.0 Note that the increments here should be added to the revenue increment per additional mile of tollway at a toll of 5¢ per mile. Thus, at 10¢, the total revenue increment for 24 years is 31 + 18 = 49 (million dollars). Sources Congressional Budget Office, Toll Financing of U.S. Highways, Congress of the United States, December 1985. Federal Highway Administration, Highway Statistics 1984, DOT, FHWA, Washington, D. C. General Accounting Office, Highway Funding: Use of Toll Revenues in Financing Highway Projects, April 1986. GAO/RCED-86-130. International Bridge, Tunnel and Turnpike Association, Toll Rates Survey: U.S.and Canada Roads, Washington, D. C., July, 1985. C. Kenneth Orski, "The Outlook For Urban Transportation", in Lester A. Hoel, Editor, Innovative Financing For Transportation: Practical Solutions and Experience, U.S. Department of Transportation, Washington, D. C., April 1986, pp. 33-34. (DOT-1-86-20). Rice Center, Alternative Financing for Urban Transportation: State-of-the-Art Case Analyses, prepared for Federal Highway Administration and Urban Mass Transportation Administration, Washington, D. C., Oct., 1983 (DOT-1-83-54). Rice Center, Joint Center for Urban Mobility, Financing Urban Transportation Improvements Report 3: A Guide to Alternative Financing Mechanisms for Urban Highways, prepared for Federal Highway Administration and Urban Mass Transportation Administration, Washington, D. C., June 1984. -33- Wilbur Smith and Associates, Dallas North Tollway and Extension, Phase I: Refinancing, Traffic and Revenues, October, 1985. Texas Turnpike Authority, 1985 Annual Report. Texas Turnpike Authority, "Financial Statement", June 30, 1986. Urban Consortium, Inflation-Responsive Financing for Streets and Highways, U.S. Department of Transportation 6/82, DOT-1-82-56. Contacts: Neil Shuster, Executive Director International Bridge, Tunnel and Turnpike Assoc. 2120 L Street, N. W., Suite 305 Washington, D. C. 20037 202-659-4620 Harry Kabler, C.P.A., Secretary-Treasurer Texas Turnpike Authority 3015 Raleigh Street P.O. Box 190369 Dallas, TX 75219 214-522-1964 -34- IB. ELECTRONIC ROAD PRICING Detail Background Attempts at road pricing experiments in the United States have not been encouraging. Thomas Higgins notes that starting in 1976, the Secretary of the U.S. Department of Transportation, William T. Coleman, wrote the mayors of several cities about the availability of a road pricing demonstration, involving window stickers or a license scheme. A number of the mayors rejected the idea outright, including the mayors of Rochester, N.Y., Atlanta, Seattle and Baltimore. The mayor of Baltimore wrote: "For a downtown area which is struggling to maintain its competitive position with suburban centers... with vast amounts of free parking, I am concerned over any proposal which would further weaken the position of Baltimore's downtown area." Only Madison, Wisconsin; Berkeley, California; and Honolulu were willing to entertain the idea. In all three cases that entertainment was short-lived, and the demonstrations were never carried out. In Berkeley, there was some distorted media attention which led many to believe that pricing would apply to all places and times, contrary to the view that free road use was a basic right. In general, rejection of the demonstration in the three cities was based on the perceptions that pricing would involve coercive interference with travel rights, harm to business and regressive impacts on the poor. However, the public appears least resistant to road pricing when it is presented as a user fee to support roads, possibly taking the place of taxes. Electronic pricing has become feasible, and can also improve public acceptance by relating charges to peak load times and places. For that reason, in considering application to revenue needs in the NCTCOG area, there is focus on expressway travel, with particular attention to peak load travel. -35- Case Study: The Coronado Bridge Experiment The California State Department of Transportation (CalTrans) is experimenting with a system called "Automatic Vehicle Identification" or AVI for short, in collecting tolls at the Coronado Bridge in San Diego County, California. The system consists of sensing devices attached to automobiles which return an electronic signal to a computer at the toll collection point. The computer identifies the signal as being from a particular car that is registered in the data bank. To register a vehicle for participation in the experiment, the vehicle owner must be willing to be billed for the charges that he incurs. The advantages of this system for the vehicle owner is that it allows him to proceed through a toll collection point with minimal delay. The system has a potential capacity far above the 400 cars per hour per man rate of an individual toll collector, and the 600 cars per hour per automatic toll collector machine. The individual also has the benefit of paying a single bill, which alleviates the problems of carrying change or of waiting for a toll collector to make change. A major prospective advantage of the system is that it has the potential for saving 10% per year in salaries of toll collectors, although this savings has yet to be demonstrated in the experiment. The final cost savings will be shown in an evaluation report due out during 1987. The second prospective advantage is that the system should substantially alleviate the congestion at toll plazas during peak hours. The original cost of the experimental system will range somewhere between $500,000 and $800,000, excluding such items as additional lanes. The system -36- is under development by Science Applications International, which currentlyis carrying out accuracy tests on the systems operation. Attention is being directed to questions such as where in or on the automobile should theidentification tag be placed? Other questions turn on the number and height of the transmitting antenna. Tests found that initially 13% of the targetautomobiles could not be fitted with the identification tag; over half of these cars had an iron compound in their windshields which upset the transmissions. The questions of compliance with the billings has yet to be tested. One possible mechanism for billing is to place the charge on the customers' VISA and Mastercard accounts. Another possibility is to bill quarterly. For people who do not pay their bills, adding the costs to their vehicle registration fees is a possibility. The question on the mix of AVI stations, automatic toll collectors, and regular toll collector stations has not been addressed. Neither has the cost of maintenance of the AVI system been estimated. Case Study: Hong Kong Pilot Project Over the period 1983-1985, the Hong Kong government commissioned a pilot study to examine the viability of electronic road pricing (ERP) in the territory. Dawson and Catling studied the workings of the project and concluded that ERP offers a highly efficient and equitable method of dealing with Hong Kong's intense traffic problems. The system reduces traffic on congested roads without penalizing drivers on uncongested roads, and gives people free choice in the selection of their trip routes. -37- The ERP system works as follows. A small, inexpensive, solid state device, termed an "electronic number plate", is attached to the underside of each vehicle. Once fitted, it requires no manual intervention and is maintenance free. A series of charge zones is defined for the area covered by electronic user charges; in the Hong Kong urban area, there were approximately 200 zones. At each zone boundary crossing, an array of loops is buried in the road surface. As a vehicle passes over those loops, its electronic number plate is energized, and its crossing is recorded. The number plate transmits a string of data at each crossing, with a unique security coded identification employed for each vehicle. Tolls per zone range from around 10¢ to $1.50 (in U.S. currency). Presumably a motorist will cross several zones during his trip, so single trip costs will be a sum of zone tolls. Tolls are cumulated by means of an inexpensive microcomputer system and at the end of the month, each vehicle owner is sent a statement of his road user charges, in a form similar to a credit card statement. Motorist needs for privacy are maintained by making listings on the statement of charges as circumscribed and limited as the user desires. The results have been accurate and reliable and Hong Kong expects to develop full scale use of the system by the end of the decade, starting with the registering of tolls as the entrance to tunnels. Toll authorities around the world have been investigating electronic road pricing for some years. Benefits include reduction of traffic congestion, increased revenue collections, and reduced costs, with replacement of salaried toll collectors with automatic sensors. In addition, there are a number of likely side benefits, including the potential for automatic traffic data -38- collection. Such data will be useful both as real-time traffic flow information (for police and journey-to-work travelers) and as data to be used for analytic purposes, from setting signal times to making highway investment decisions. Potential for Increased Revenue, Electronic Road Pricing Weekday vehicle miles of travel (VMT) in a previous version of the NCTCOG planning area (The Intensive Study area) were 77.17 million per day, as of 1985, distributed as 33.76 million VMT on freeways, 36.32 million VMT on arterials and 7.09 million VMT on local roads. To obtain an annual figure, daily travel is multiplied by 340 (instead of the usual 365 days) accounting for somewhat lower volume on weekend days. To convert to levels corresponding to the current NCTCOG transportation planning area, volumes are multiplied by 1.05. Volumes per year then become 27.55 billion VMT in total, distributed as 12.05 billion VMT on freeways, 12.97 billion VMT on arterials and 2.53 billion VMT on local roads. If pricing were limited to the 12.05 billion VMT on freeways, the following revenue would be obtained: ______________________________________________________________ Revenue in millions of dollars Current Increment Level Annual Projected over Source of Revenue (Annual Current 24 years to 2010 Total) Level Low - High - Annual Annual x 24 x 36 ______________________________________________________________ Electronic Pricing - At 0.1¢ per VMT on freeways --- 12.0 288 432 - At 1¢ per VMT on freeways --- 120.0 2880 4320 - If peakload travel on freeways is 0.4 of daily VMT, and the charge is 1¢ per VMT --- 48.0 1152 1728 - A charge of 50 per VMT during peak load travel, again assuming 0.4 of daily VMT on freeways is peak load. --- 240.0 5760 8640 -39- Sources Background: Thomas J. Higgins, "Road Pricing Attempts in the United States," Transportation Research-A, Vol. 20A, No 2, March 1986, 145-150. Coronado Bridge: Contacts California Department of Transportation - District 11 William Dotson, Director James Gray, Deputy Director for Maintenance and Operations Stewart Shuga, AVI Project Engineer 2829 Juan P.O. Box 85406 San Diego, California 82138-5406 Thomas McDaniel Science Applications International 10210 Campus Point Drive San Diego, California 92121 Hong Kong Pilot Project: References J. A. L. Dawson and I. Catling, "Electronic Road Pricing in Hong Kong", Transportation Research-A, Vol. 20A, No. 2, March 1986, 129-134. Steven A. Morrison, "A Survey of Road Pricing", Transportation Research-A, Vol. 20A, No. 2, March 1986, 87-95; see 94-95 in particular, for a discussion of the Hong Kong pilot project. Vehicle Miles of Travel: North Central Texas Council of Governments "Weekday VMT Summary Report, 1977-1985", Revised 5/20/86. -40- II. JOINT PUBLIC-PRIVATE FINANCING Overview The heading of Joint Public-Private Financing covers a number of current activities and suggested activities that have generated a great deal of interest. Those that are included in this review are cataloged under the subheadings of Development Impact Fees, Benefit Assessment Districts, Leasing or Sale of Development Rights or Air Rights, and Developer Contributions through Negotiations. In all these cases, there is a recognition of the interaction between new highway construction and real estate development. The recognition may take the form of a policy of charging for additional traffic or transportation capacity generated by new development; or it may take the form of a policy of capturing some of the benefits generated by new highways, particularly the benefits of land value appreciation. Although these policies have apparently differing justifications, and their implementation is carried out by many different mechanisms, their rationale seems basically the same: it is proper to hold private sector interests accountable for the benefits they derive from highway development, and for the costs they impose in taking advantage of those benefits. The sources behind this rationale include recognition of and response to current financial stringencies; growing acceptance of the "user pays" principle; the trend to privatization; and a recasting of the "no-growth" advocacy position. Although many developers and real estate owners have resisted contributing to highway funding, a number now accept that arrangement, and considerable revenue has been raised thereby. -41- II.A. DEVELOPMENT IMPACT FEES Overview Definition Impact fees are fees imposed on private sector developers to mitigate the impacts of new projects on local services. Since new developments increase congestion, private developers should help pay for solutions which mitigate the congestion. As a condition for obtaining site plan approval or building permits, fees of various amounts can be imposed on a one time basis, or they may be imposed in the form of an annual tax. Both forms are usually based on the square footage of the new development. The actual size of the impact fee will vary based on percentage of total costs for which the private developers are to be held responsible. Examples San Francisco, CA (San Francisco County Board of Supervisors, Finance Bureau of the Public Utilities Commission). Sacramento, CA (Sacramento County Planning Department). Portland, OR (County Planning Commission, TRI-MET). Farmers Branch, TX (Richardson, TX is considering the introduction of impact fees.) Financial Results Revenue potential for transportation impact fees can be very substantial. This revenue can be generated on a one-time basis or can be generated over a number of years. The San Francisco program imposes a $5 per square foot fee on a one-time basis and will have an estimated revenue potential of $37 million once it clears legal hurdles hindering implementation. It should be noted that very high fees may have the undesirable effect of causing private developers to relocate or abandon plans or perhaps contest the fees in court. These effects could lower the financial benefits of the fees. Major Issues Legal/Administrative Local ordinances are required. These ordinances are subject to challenges from property owners and developers who claim they are being required to pay more than their fair share of the cost of transportation improvements. Negotiated requirements raise questions about conditions being attached to zoning approvals. Litigation questioning the legality of impact fees Francisco. Political Developers and property owners contend the fees discourage growth and impose unfair economic burdens on them but not on earlier development projects. If the fee is applied retroactively to approved development plans it will be viewed as an unfair additional expense by earlier developers. Economic It is equitable to make problem creators pay for the solutions of those problems. However, impact fees may not be efficient if they inhibit development, and high enough fees will do so. (If growth limitations are desired, high impact fees will serve well in achieving that end.) The fees are well suited to obtaining revenue for highway extensions and expansions. -42- II.B. BENEFIT ASSESSMENT DISTRICTS Overview Definition A benefit assessment is a tax or fee placed on property within the boundaries of a district which has benefited from some particular improvements including transportation investments such as highways and transit systems. Benefit assessment revenue is used to pay for all or part of the cost of the specific improvement made within the district and can be used to secure and retire the bonds financing the improvements. Fee revenue may also be used to fund maintenance and operating costs. Special assessments may be either one-time or recurring charges. Examples Denver, CO (Rapid Transit District in Denver, Downtown Denver, Inc.). Miami, FL (Dade County Transportation Administration). Los Angeles, CA (Southern California Rapid Transit District). Houston, TX (Harris County) Financial Results Actual assessments are based on (a) annual costs of debt service or operations, and (b) estimates of the value of the benefits to the property located within the district - this is often done on a sliding scale, based on proximity to the improvements and expected increases in property values due to improvements. The range of fees typically runs from 5¢ to 45¢ per square foot for the annual assessments. Major Issues Legal/Administrative State enabling legislation is required before a transportation agency or other local government can levy special assessment fees. Intergovernmental agreements may be required for a transportation agency in order for it to receive assessment revenues. If sliding scales are used it is necessary to develop rational formulae for delineating the location of rate changes. Political Capital costs may be more politically feasible than operational costs in gaining approval for benefit assessments. Developers and property owners may argue for lowering fee rates since it is difficult to determine special benefits (as opposed to costs). The method permits financing without creating a new area wide tax, which may be politically advantageous. Economic Assessments employ the user fee principle: those who benefit pay and those who benefit most pay the most. Of course, those singled out as beneficiaries usually prefer the costs to be spread to the larger community. If beneficiaries do not think the improvements are worth paying for, then setting up districts can be postponed. Benefit assessment districts are usually employed in central business districts or transit station areas but could work with property owners and businesses on or near highways. -43- II.C. LEASE/SALE OF DEVELOPMENT RIGHTS OR AIR RIGHTS Overview Definition Transportation agencies may lease or sell development rights for the space above or adjacent to their land holdings and facilities. They can lease space above rail and bus stations, and above highways. This space may be used to build hotels, office and retail facilities. Adjacent space can be offered to neighboring businesses interested in improving access to the transportation site. Examples Boston, MA (Massachusetts Turnpike Authority). Miami, FL (Office of Transportation Administration for Metropolitan Dade County). Sparks, NV (Nevada State Highway Department). Washington, D. C. (Washington Metropolitan Area Transit Authority). State of California (Caltrans-California Department of Transportation). Financial Results Leasing or selling air rights or development rights to adjacent space is a method of generating substantial amounts of revenue for transportation systems. It is usually deemed preferable to lease development rights rather than sell them. This provides continual income for the life of the lease rather than a one time payment. Funds can be used for operating expenses or to finance future capital investments. Whether sold or leased the development property should have the additional benefit of contributing to the property and/or tax base of the community. Major Issues Legal/Administrative The sale of development rights may require enabling legislation. Leases need approval of many governmental parties. Alternative proposals via competitive bidding legally may be required. If there are rent terms beyond a fixed sum, it is easier to negotiate leases based upon gross projected revenues rather than actually monitored profits. Political Losers from any proposal requiring competitive bidding may litigate the transportation agency's decision to award the lease to another party. This can delay the project, raise costs and lower actual revenues. State laws and local laws may conflict in such cases. Area residents may oppose sales or leasing if they are not consulted on the design and impact of development. Community approval of the project may take many meetings. Economic Large projects favor large developers and may be inaccessible to small and minority development groups without special consideration being given those groups. Development can benefit both employers and their employees by providing prime location real estate to developers, office and retail space to employers and transportation facilities to workers. Use has primarily been at transit stations, although some highway use has occurred. -44- II.D. DEVELOPER CONTRIBUTIONS THROUGH NEGOTIATIONS MECHANISM (1) - LEASING OF LAND AT LOW RATES AND LAND DONATIONS Overview Definition Leasing property may be one method to reduce costs of land acquisition for a transportation agency or government. Negotiated land leases are agreements between private developers/property owners and the transportation agency/local government under which land is leased for a nominal charge in order to allow construction of transportation facilities. It may also be possible for local governments and transportation agencies to successfully solicit donations of land from the private sector to permit transportation improvements to be made. A well organized and highly visible campaign can locate multiple donors of land who are willing to contribute some of their holdings. Examples Takoma, WA (Pierce Transit Planning Office). Phoenix, AZ (Phoenix Transit). Grand Rspids, MI (Grand Rapids Area Transit Authority). Financial Results The major benefit is the cost saving of not having to buy land or condemn land for transportation purposes. A combination of donations and long term leases at low rent can significantly reduce costs of highway construction in metropolitan areas. There are examples of leasing for 20 to 30 years at $1 per year per parcel. But opponents to highway construction/expansion may limit use of the method. Major Issues Legal/Administrative For leases, transportation agencies need authority to contract with private property owners. There are no known legal problems with donations. Political The approach necessitates close leasing process. There is rarely any public opposition to leasing land. Acquiring land through donation requires exceptional persuasive powers and political sensitivity, particularly if more than one landowner has the needed property. Donations are unlikely to raise public opposition. Economic The method is efficient, but can pose implementation problems. It is also equitable as donors or leasors are usually large landowners/developers who are providing a small portion of their holdings in order to increase the value of the rest of their property. Progress may be impeded by the high number of private parcels needed. -45- II.D. DEVELOPER CONTRIBUTIONS THROUGH NEGOTIATIONS MECHANISM (2) - LEASE/SELL FACILITIES Overview Definition Once a local government has full interest in a property it can dispose of any portions which are not needed for transportation purposes. Local governments and transportation agencies should consider vacant or under-utilized property as a potential source of revenue through sales or leasing arrangements with the private sector. For new or future development it may be desirable to plan for additional building space which can then be leased. It is normally preferable to lease rather than sell facilities unless government authorities can safely determine that such facilities will no longer be needed in the future. Funds are used to offset operating expenses of the leased facility. Examples Santa Cruz, CA (Santa Cruz Metropolitan Transit District). Fargo, ND (City of Fargo). Financial Results Leasing or selling facilities is a method of generating relatively modest amounts of revenue. Revenues depend on the availability of facilities which are under-utilized, and the local real estate market in that area. Private sector leases agree to lease the facility for a given time period for a fixed rate and to pay for improvements to the property. Both parties determine how utilities are to be paid. In the cases cited, revenues roughly equalled operating costs in one case (Fargo) and were less than operating costs in another (Santa Cruz). Major Issues Legal/Administrative Transportation agencies and local governments need special authority to dispose of facilities no longer needed for transportation purposes. Revenue potential may be reduced by a need to turn a percentage over to UMTA or other government organizations if the projects to be leased were partially financed with UMTA or other government funds. UMTA, HUD and others have allowed such agreements, however. Political Proposals to lease or sell transit facilities are not likely to be opposed by local community organizations. This type of revenue measure may slow down transportation funds from UMTA. In the North Dakota case it took four years to get UMTA funds released. Economic When unneeded facilities can be leased or sold the private sector benefits by obtaining a facility it wants, the transportation agency or government receives additional revenue and citizens may receive additional services at no cost. All parties can benefit. There has been limited applicability to date in public transportation and the approach is likely to be more applicable to transit facilities than to highway facilities. II. D. DEVELOPER CONTRIBUTIONS THROUGH NEGOTIATIONS MECHANISM (3) - AD HOC NEGOTIATIONS Overview Definition A variety of specific negotiations can be carried out between government agencies and private organizations, particularly developers. Government agencies can bargain using discretionary development approvals. Examples Three California cases - two in Southern California and one in Northern California - involve major developer contributions. Texas Transportation Corporations can be subsumed under this heading. Financial Results The California cases involved contributions ranging from $60 to $80 million. Of course, these occurred within the context of major developments, running around one billion dollars each. Hence, the level of contribution ran from 6 to 8% of the development cost. Major Issues Legal/Administrative There are a variety of legal constraints on local government negotiations regarding development requirements. This leads to the question "Why Not Buy and Sell Zoning...legally, that is?" Political Private developers may be more experienced and sophisticated than public officials in the negotiation process, or at least members of the public may think so. Economic The flexibility afforded by ad hoc bargaining may improve chances of working out an agreement acceptable to all parties. -47- II. JOINT PUBLIC-PRIVATE FINANCING Detail Background There is growing interest and more important, stepped-up activity, under the heading of joint public-private financing of highways.1 The reasons for this growth likely include the following. (1) Financial Stringency. In an era of fiscal restraint, both at the state and local level (e.g. California's Proposition 13) and at the federal level (e.g. Gramm-Rudman-Hollings), there is an increasing need for creativity in meeting revenue goals. (2) Demographic Changes. Population increase is approaching a zero-population-growth rate, greatly reducing overall interest in and pressure for new roads at the national level. Yet, in most large urban areas, population and industry continue their suburban shift, generating a discerned need for new highways in suburban locations. (3) User Pays Principle. There seems increasing recognition of the proposition that the user or beneficiary of a service ought to pay for that service. In highway finance, this involves a considerable shift from the view that the community at large ought to pay for highway facilities, a view that wee a basic element of postwar policy, beginning with the Federal Aid Highway Act of 1956, which established the National Interstate and Defense Highway System. It is plausible that the voting public has become increasingly disillusioned with a lack of accountability in general taxation-based financing, leading to the positive reception of the user-pays principle.2 -48- (4) Privatization. There is a general trend toward privatization, and to the extent that developers begin to play a direct role in highway planning and policy as a result of explicitly bearing some of the costs, the privatization motive may come into play in direct fashion.3 (5) Modifying of No Growth Stance. Persons advocating the limiting or cessation of urban growth have recently tended to moderate and modify their position, viewing such devices as impact fees as more modest and realistic instruments to slow growth than the use of direct controls.4 There are some causal issues that should be addressed in considering joint public-private financing. Impact fees are a means of mitigating or compensating for the "negative" effects of new development, which adds traffic to the highway system and thus increases congestion and a need for increased government spending to ameliorate the congestion. However, new buildings typically will be built in response to new highways having been built, or because of changing economic circumstances making both highways and development worthwhile; that is, highways either cause development or both highways and development are caused by the same external source, but development, to proceed, must have the access furnished by highways. Benefit assessment districts, leasing or sale of development rights or air rights, and developer contributions through negotiations explicitly recognize this contribution of highways to land development and increased land value.5 New highways have caused development along or near those highways to become profitable, or more profitable than they were, by increasing access to the land along or near the highways. Hence, impact fees or benefit assessments can be viewed as a response to the same process. Of course, "costs" are seen as "negative" or "bad", and benefits are seen as "positive" or "good", but both perspectives might be viewed as somewhat -49- partial. It is presumed here that on balance, the benefits outweigh the costs, and further, that developer responses adding to "costs" are part of the movement to a long run equilibrium of traffic generation and development induced by new highways. Many developers and real estate owners have resisted participating in the raising of highway revenue, seeing that participation as a form of legal extortion. However, there appears to be growing acceptance of the proposition that such participation may be the only means of building new highways that the private participants would like to see built. Acceptance is strengthened when costs can be passed on to tenants or consumers, which is often the case. In practice, private participation has resulted in a good deal of revenue for highways, which will be demonstrated below. -50- Footnotes 1. Useful reviews of both the literature and of activities appear in Lester Hoel, Innovative Financing for Transportation: Practical Solutions and Experiences, U. S. Department of Transportation, Washington, D. C., April, 1986 (DOT 1-86-20) and in C. Kenneth Orski, "Suburban Mobility: The Coming Transportation Crisis", Transportation Quarterly, Vol. 39, No 2, April 1983, 283-296. 2. Robert C. Schaevitz makes this point in Hoel, Innovative Financing, p. 173. 1 3. Orski argues that developers, landlord and employees are in far better position than public agencies to influence individual commuters' travel habits. (His paper in Hoel, Innovative Financing, pp. 3-31.) 4. James Duncan and Norman Standerfer, Impact Fees: The Changing Direction of Growth Management, Austin, Texas, November, 1985. 5. Orski points out that assessed value of property may not bear a relation to traffic generation ("Suburban Mobility..." p. 290). But such a nonrelationship is unusual; typically, value and traffic levels are highly correlated. -51- II.A. DEVELOPMENT IMPACT FEES Detail General Experience The use of impact fees for highway financing is reputed to have been first employed in the fast growing areas of Florida and California (Schmidt, 1985). In addition to those states, current examples include Colorado, Maryland, New Jersey and Oregon (Orski, 1985, 289). When first employed, impact fees were tied specifically to the impact of a particular development on traffic. But there has been some tendency to widen the geographic responsibility of private contributions, so the relationship between a given development's impact on traffic and the fee it is charged becomes fuzzy and diffuse. In California and Florida, the initial pattern prevails on the basis of court rulings that any fees levied on new development must be earmarked for purposes benefiting those who pay the fees (Orski, 1985, 291). In New Jersey, by contrast, developers pay fees related to state-wide highway development. Impact fees will have greatest applicability and yield the highest revenue in areas with considerable new development. Hence, it is not too surprising that in the local financing of highways in California, impact fees tend to be used in growth areas, while local option sales taxes are used in stable areas. The magnitude of fees charged can vary a great deal. But this is not surprising when land values are compared; land values in the central business district of large cities are some orders of magnitude above land values at urban peripheries. Thus, in reviewing California experience with impact fees, Reid and Winkler report that San Francisco charges $5,000, Escondido charges no more than $400 and Simi Valley charges only $55 per 1,000 square feet of new office -52- space. In addition to differences in land values, differences in receptivity to growth probably play an important role, since areas resisting growth will tend to charge higher fees. Fees can be charged annually or on a one time basis. Berkeley, California charges 200 per square foot of development for 30 years to cover "traffic system management plans". Cities charging a one-time fee include Irvine, at $6 per square foot; San Francisco at $5 per square foot; and Orange County at $3.75 per square foot, all for commercial development. Some fees are charged on the basis of trips generated, rather than on the basis of square feet of development, but usually there is a conversion rule that translates square feet into trips. Los Angeles is considering charging $2,010 per evening rush hour trip generated by developments within the Coastal Corridor Transportation Plan area (Reid and Winkler, p. 194). This has been estimated to correspond to $6.18 per square foot of office space, assuming that 1000 square feet of office space generate 12.3 trips and that one fourth of the trips occur in the evening rush hour. Further, Los Angeles plans to impose an impact fee of $5,650 per peak hour trip generation for development within a six block area that runs along Wilshire Boulevard just south of UCLA. Orange County also uses a trip generation basis for some of its impact fees, in some cases charging as much as $5,000 per peak hour trip generated. Both costs borne by developers and their share of total project costs can be quite high. Orange County's major application of impact fees takes the form of "corridor fees" to be imposed on developments served by three new freeways - the San Joaquin Freeway, the Eastern Freeway, and a freeway paralleling the Santa Anna Freeway. The Irvine Company is the major developer in the area, and it seems likely it will pass the impact costs on to its customers. The corridor -53- fees are estimated to equal $630 million, roughly half the costs of the new highways. (Orski's estimate is 60%, [1986, p. 35]; Straton's is 40: as the developer's share - see the appendix to this report.) In Montgomery County, Maryland, developers have proposed an "impact fee district" to raise 50 percent of the cost (approximately $75 million) of transportation improvements in a rapidly expanding part of the County. Annual fees will extend over 20 years, and the annual fee obligation will constitute alien on the property. Highway impact fees are not limited to charges on commercial and industrial land use. Orange County, for example, charges $1,250 per new residential unit. More generally, some California cities have very detailed lists allocating particular levels of impact fees for very specific land uses, as shown in Table 6. Local Application of Impact Fees A number of cities in Texas have instituted capital recovery fees, a form of impact fees, usually for water and sewer lines. Most of the cities have relatively small populations, with Plano the largest city having a fee system in place. (For a detailed survey of Texas experience, see Pugh et. al.). Plano uses "lot development fees" to account for the additional costs of increasing the capacity of water and sewer systems in response to increasing demand. Plano was one of the first of the local area governments to implement an impact fee system, and that system has yielded a moderate amount of revenue. -54- TABLE 6 TRAFFIC IMPACT FEES IN CALIFORNIA City Fee Description Escondido Traffic Impact Fee Residential $395 to $790/DU Commercial/Retail $800 to $10,000/1000 sq.ft. Offices $400 to $1,800/1000 sq.ft. Banking $1,200 to $6,000/1000 sq.ft. Industrial $60 to $200/1000 sq.ft. Automotive $1,200 to $15,000/1000 sq.ft. Recreational varies Restaurants $2,000 to S12,000/l000 sq.ft. Church $600/l000 sq.ft. of Main Sanctuary Day Care $40/student Elementary Sch/Jr. High $20/student Hospital $400/1000 sq. ft. or $60/bed Lancaster Traffic Signals Fee Residential zones $96/DU Multiple Residential zones 96/DU Commercial zones 2,181.95/gr.ac. Industrial/Manufacturing 378.20/gr.ac. Los Angeles Traffic Impact Fee of $2010/evening rush hour trip generated by a development within the Coastal Corridor Transportation Plan area Los Angeles Regional Transit District plans to impose a Tax Increment Financing arrangement on commercial properties near proposed metro rail subway stations. Manhattan Parking-in-lieu fee for commercial developments Beach in downtown business district @ $15,000/ required parking space (number of required parking spaces unspecified in materials received) Orange County Traffic Impact Fee for new freeway construction @ $1250/new residential unit @ $3.75/sq.ft. on new commercial space built within several square miles of the proposed San Joaquin Hills and Foothill/Eastern transportation corridor Rancho Street and Highway Systems Fee @ 1% of Cucamonga building valuation San Diego San Diego Transit traded density to certain developers for $100,000 to help pay for the Mission Viejo rail line. San Francisco Traffic Impact Fee of $5/sq.ft. of development on new downtown office construction to finance improvements to the City's public transportation system (imposed as of 1981). Santee Traffic Impact Fee of $76/estimated trips for development + Traffic Signal Fee of $6.67/ estimated trips for dev. -55- TABLE 6 (continued) TRAFFIC IMPACT FEES IN CALIFORNIA Simi Valley Traffic Signal Construction Fee Land Use Fee Single Family Detached House $44.50/Dwelling Unit (DU) Condominium/Townhouse 22.50/DU Mobile Home 11.00/DU Apartment 12.50/DU Hotel 47.00/room Hotel 45.50/room Industrial 24.00/1000 sq.ft. Warehouse 22.50/1000 sq.ft. Light Manufacturing 18.00/1000 sq.ft. Shopping Center: a. <50,000 sq.ft. 515.50 b. 50,000 to 99,000 sq.ft. 25,775 + $188.50/sq.ft.>50,000 c. 100,000 to 100,999 sq.ft. 35,000 + $186.00/sq.ft.>100,000 d. 200,000 to 499,999 sq.ft. 53,800 + $120.50/sq.ft.>200,000 e. 500,000 sq.ft. + 89,950 + $97.00/sq.ft.>500,000 Service Station 3,329.00/1000 sq.ft. Drug Store 195.50/1000 sq.ft. Discount Store 287.50/1000 sq.ft. Supermarket 558.50/1000 sq.ft. Convenience Market 2,570.00/1000 sq.ft. Clothing Store 139.50/1000 sq.ft. Hardware Store 228.50/1000 sq.ft. Variety Store 64.00/1000 sq.ft. Furniture Store 25.00/1000 sq.ft. Department Store 113.50/1000 sq.ft. Savings and Loan 271.50/1000 sq.ft. Bank-Walk-in 752.00/1000 sq.ft. Bank-Drive-in 854.50/1000 sq.ft. Restaurant-Quality 250.50/1000 sq.ft. Restaurant-High turnover/sitdown 732.00/1000 sq.ft. Restaurant-fast food 2,461.00/1000 sq.ft. Hospital 75.50/1000 sq.ft. Nursing Home 12.00/1000 sq.ft. Medical Office 334.00/1000 sq.ft. General Office 55.00/1000 sq.ft. Office Park 92.00/1000 sq.ft. Research Center 41.50/1000 sq.ft. Civic Center 111.50/1000 sq.ft. Racquet Club 40.00/1000 sq.ft. Medical Clinic 26.50/1000 sq.ft. Stockton Traffic Signals District Fee (unspecified) Yorba Linda Eastside Street Improvement Fees @ $600/unit Source: Gary J. Reid and Donald R. Winkler "User Fees Among Cities in Los Angeles County and The Rest of Southern California", a report to the Los Angeles Taxpayers Association, Aug. 6, 1986, pp. 195-6. -56- The pattern of fees charged in Plano, over time, is as follows: FEE DEVELOPMENT RESIDENTIAL NONRESIDENTIAL 1978 (established) $50 -- 1982 $100 $10 per 1000 sq. ft. (approx.) 1985 $300 $30 per 1000 sq. ft. Fees were tripled in 1985, yet this has not increased revenue collected because of the recent slowdown in residential and commercial development. Despite the increase in rates, the Plano rate structure is now relatively low, compared to nearby cities, so this may be a feature that developers find attractive. Both the cities of Richardson and of Farmers Branch are exploring the use of impact fees in transportation development. Richardson recently retained a consulting firm to explore the viability of such fees (the report was positive) and prepared a model ordinance to implement the fees. Farmers Branch has written and passed ordinances to charge impact fees for a number of infrastructure items (water and sewer facilities, landscaping and land improvements), as well as for transportation improvements. Of direct interest, Farmers Branch is planning to charge a one-time fee of 50¢ per square foot for new construction near the LBJ Freeway. This is a modest amount compared to some of the California fees noted above. Potential for Increased Revenue, Impact Fees In gauging the potential for increased revenue in the NCTCOG planning area, several sets of estimates must be developed under these general classifications: (1) amount of new development, by land use category, and (2) plausible levels of impact fees for each of those categories. Estimates under classification (1) were developed here by drawing on a number of sources. Two important sets of data derived in this process appear as Tables 7 and 8, respectively. Table 7 -57- Click HERE for graphic. -58- TABLE 8 INFORMATION ON DALLAS/FORT WORTH RETAIL SPACE USE Shopping Center Expansion in Gross Leasable Thousand Sq. Ft. Area in Thousand Percent Planned Section Square Feet, 1985 Vacant 1985 1986-87 1 Dallas CBD 2,547.5 6.5 67.4 380.7 2 Dallas Northeast 6,374.9 9.2 290.9 582.5 Quadrant 3A Far North Dallas 6,895.5 4.1 299.5 143.5 3B North Dallas 5,235.0 7.6 161.2 115.4 3C Dallas, Park 2,922.8 3.7 299.6 621.9 Cities - OakLawn 3D Dallas,Love 195.4 11.7 25.0 39.1 Field-West Dallas 4 Dallas, Southeast 1,796.1 6.8 98.7 454.7 Quadrant 5 Dallas, Southwest 5,531.9 11.8 264.8 508.2 Quadrant 6 Addison 1,216.6 16.9 34.8 144.0 7 Carrollton 2,006.2 22.7 395.1 1,329.8 8 De Soto/Lancaster1,141.0 3.2 205.0 726.0 9 Duncanville 1,312.3 11.8 120.8 933.6 10 Farmers Branch 742.7 9.9 20.1 0.0 11 Garland 3,964.2 16.6 141.5 579.6 12 Grand Prairie 861.3 8.3 119.5 537.0 13 Irving 4,550.0 10.8 616.0 534.3 14 Mesquite 4,059.8 10.2 214.7 1,022.4 15 Richardson 3,824.7 10.3 93.0 271.5 16 Plano 6,753.8 18.8 1,596.8 1,418.4 17 Denton/The Colony2,410.7 7.6 477.7 105.0 18 Lewisville ,1,546.2 34.3 431.3 1,258.6 Dallas Total 65,888.4 11.0 5,973.3 11,706.1 19 Arlington 7,613.5 14.1 901.1 2,560.0 20 Bedford/Euless 1,728.0 21.5 393.1 598.6 21 Hurst 3,141.2 6.1 448.1 129.8 22 Fort Worth, 1,152.5 6.4 161.3 829.6 Northeast Quadrant 23 Fort Worth, 2,726.9 9.4 219.2 1,014.2 Northwest Quadrant 24 Fort Worth, 1,112.0 9.8 100.0 272.4 Southeast Quadrant 25 Fort Worth, 5,698.9 7.3 769.4 865.4 26 Fort Worth CBD 1,156.9 16.7 0.0 0.0 27 North Richland 2,008.8 16.6 372.0 482.0 Hills Forth Worth Total 26,338.9 11.5 3,364.2 6,752.0 Grand Total 92,227.3 11.2 9,337.5 18,458.1 Source of data: Sandra Albrecht, 1985 Dallas/Fort Worth Shopping Center Survey, Henry S. Miller Co. Realtors, Dallas, Texas, 1985. -59- exhibits estimates of office space in place and recent additions to office space, for the Dallas market, while Table 8 performs the same functions for retail space. In addition to Tables 7 and 8, information sources included the following. Information on Dallas area industrial space wee obtained from the Dallas Chamber of Commerce, while information on Fort Worth-Arlington area office, commercial and industrial space was obtained from the Fort Worth Chamber of Commerce. Estimates from those sources were generally consistent with data on total office and industrial space obtained from several other sources (including Blacks Office Leasing Guide, The Swearingen Co., and the Joe Foster Co.). Residential unit estimates were obtained from a recent NCTCOG publication. Information on the level of impact fees elsewhere, developed above, was drawn on to estimate plausible levels for the NCTCOG area. Those estimates consist of constant levels of fees, but it must be remembered that impact fees should vary within the NCTCOG area, depending on location. Hence, the estimates developed here must be viewed as preliminary and subject to considerable refinement. Those estimates are now presented by land use category. Housing Units The estimated construction of housing units in 1985 was obtained from COG estimates prepared in March 1986, (Current Housing, 1986, estimates), which listed these additions to the housing stock by area: City of Dallas 16,000 Remainder of Dallas Co. 17,000 Collin County 4,581 Denton County 6,780 Tarrant County 29,381 Total 73,742 -60- If housing units are charged the following alternative levels of impact fees, the corresponding revenue alternatives are obtained. ______________________________________________________________ Revenue in millions of dollars Current Increment Level Annual Projected over Source of Revenue (Annual Current 24 years to 2010 Total) Level Low - High - Annual Annual x 24 x 36 ______________________________________________________________ Impact fees on Housing at $100 per unit --- 7.4 177 265 at $250 per unit --- 18.4 442 664 at $500 per unit --- 36.9 885 1327 at $1000 per unit --- 73.7 1770 2655 Nonresidential Space The following estimates of new construction in 1985 were developed for each of the major land use categories, drawing on Tables 7 and 8, and on related data. Land Use Category Million Square Feet Office, Dallas County 10 Total Office, NCTCOG Area 13 Retail-commercial, NCTCOG area 10 Industrial, NCTCOG area 15 Estimates of office space expansion were based on data obtained from Table 7 and from the Dallas and the Fort Worth Chambers of Commerce, including the former's Office Space Inventory. Retail space expansion in 1985 was 9.3 million square feet (Table 8), so the estimated total of 10 million square feet for retail-commercial includes other forms of commercial use. Rents for industrial space typically average about one-fifth those for office space and impact fees are scaled accordingly. (The differences reflect both type of construction and location). In considering the impact fee estimates, the following caveats should be noted. First, the potential for impact fees in the next several years will be limited -61- because of the current "glut" of space, particularly office space, and because the new federal tax law is likely to further inhibit new construction. Second, these figures assume all new construction will be charged the impact fee at the rates shown. As noted above, rates are liable to vary with location. Further, fees may be limited to areas experiencing considerable growth. Currently, the lower value for the impact fee seems more likely than the upper level. However, higher rates should be possible in the future. Subject to those caveats, the following estimates are obtained. ______________________________________________________________ Revenue in millions of dollars Current Increment Level Annual Projected over Source of Revenue (Annual Current 24 years to 2010 Total) Level Low - High - Annual Annual x 24 x 36 ______________________________________________________________ Impact Fees on: Office Space 13 million square feet per year: per square foot feet, one time charge $1 impact fee --- 13 312 468 $2 impact fee --- 26 624 936 $5 impact fee --- 65 1560 2340 Retail, Commercial Space 10 million square feet per year: Per square foot fee, one time charge $1 impact fee --- 10 240 360 $2 impact fee --- 20 480 720 $5 impact fee --- 50 1200 1800 Industrial Space 15 million square feet per year: per square foot fee, one time charge 20¢ impact fee --- 3 72 108 $1 impact fee --- 15 360 540 -62- Sources Sandra Albrecht, 1985 Dallas/Fort Worth Shopping Center Survey, Henry S. Miller Co. Realtors, Dallas, Texas, 1985 Black's Guide Inc., Black's Office Leasing Guide, Fall 86, Dallas, Texas, 1986. City of Farmers Branch, Texas, Improvement Ordinances for the East Side Improvement District: # 1430 Platting and subdivision of land, Feb. 1983 # 1439 Water and sewer line improvements, May, 1983 # 1440 Water and sewer line improvements, June, 1983 # 1526 Paving improvements, Nov., 1984 # 1528 Paving improvements, Nov., 1984 City of Richardson, Texas, Executive Summary of Robert Freilich and Martin Leitner on "Financing Transportation Improvements Through Impact Fees", Memorandum to Mayor and City Council from A. O'Rourke, "Transportation Impact Fee Program", Nov. 27, 1983. City of Richardson, Texas, Draft Ordinance, "Impact Fee for Transportation Management Improvements", January 20, 1986. Dallas Chamber of Commerce, Industrial Properties Guide, 1986-87, Dallas, Texas, Aug. 1986. Dallas Chamber of Commerce, Office Buildings Guide, Dallas, Texas, Jan. 1986. North Central Texas Council of Governments, Current Housing 1986 Estimates, March, 1986. C. Kenneth Orski, "Suburban Mobility: The Coming Transportation Crisis?" Transportation Quarterly, Vol. 39, No. 2, April 1985, 283-296. C. Kenneth Orski, "The Outlook for Urban Transportation", in Lester A. Hoel, ed. Innovative Financing for Transportation: Practical Solutions and Experiences, U. S. Department of Transportation, 1986, 19-38. David L. Pugh, Christine Bailey Bishop, Charles W. Springer, Joanie Carson Raff, A Survey of Capital Recovery Fee Systems in Texas, Texas A & M University System, 1986. Gary Reid and Donald Winkler, User Fees Among Cities in Los Angeles County and the Rest of Southern California, Los Angeles: LA Taxpayers Association, 1986. William E. Schmidt, New York Times Service, "Development Fees Harvest Cash and Protests", Austin American-Statesman, Nov. 4, 1985, E1. Richard Straton, Appendix to this report. Texas Good Roads Transportation Association and Greater San Antonio Chamber of Commerce, Financing the Future: A Seminar Exploring Traditional and Innovative Transportation Funding Alternatives, San Antonio, Texas, Oct. 10, 1985. Donald Winkler, Comparative Study of Business Taxation by Local Government in Southern California, Los Angeles: LA Taxpayers Association, 1984. -63- Contacts: Mr. James Forte, Director of Finance, City of Plano P.O. Box 830358, Plano, TX 75086 (214) 424-6531 Mr. Kelly Walz, Director of Budget and Research City of Farmers Branch, 13000 William Dotson Farmers Branch, TX 75381 (214) 247-3131 Swearingen Co., office apace estimates, (214) 922-8700. Comparison of Estimates of Building Space Table 7 lists office space totals for the Dallas market in early 1986 as 116.5 million square feet, existing, and 17.8 million square feet, under construction. Black' a Guide for fall, 1986 lists total Dallas-Fort Worth office space as 148.1 million square feet. The Swearingen Co. lists essentially the same total for 1986, with this breakdown: Dallas Area - 129.5 million square feet Fort Worth Area - 18.7 million square feet Total Metro Area - 148.2 million square feet The Dallas area figure here seems basically consistent with that of Table 7, given completion of much of the construction under way earlier in the year. The Joe Foster Company lists total industrial space in the Dallas Fort-Worth area as 231.9 million square feet, which is approximately 1.5 times the total office space figure of Black's Guide and the Swearingen Company. This seems roughly consistent with the ratio of new industrial to new office space that was estimated in text for the NCTCOG area (15 million/l3 million square feet or 1.15), which seems reasonable given the presumption that office space likely has been expanding somewhat faster than industrial space. -64- II. B BENEFIT ASSESSMENT DISTRICTS Detail General Experience Benefit assessment districts can be viewed as devices to capture some of the benefits of highways which appear in the form of increases in private real estate values. Robert Schaevitz points out that the use of special assessment districts for a number of infrastructure investments (local roads, water and sewer improvements) is not new, and is sanctioned by law in a number of states. In most cases, the key point is the existence of demonstrable improvement of specific properties, implying a special implying a special rather then a general benefit. When the benefit conferred is not universally or equally shared by all properties within the given political jurisdiction, charging for the improvements is termed an assessment; when the benefit is more-or-less universally and equally shared, charging for the improvement is termed a tax. Often, simple formulas have been used to estimate the amount of benefits derived such as charges based on square feet or front feet of a development. However, in many states, charges must be based on more precise estimates of benefits conferred, and further, can be independent of the costs of the improvement. A critical concern in establishing a benefit a benefit assessment district, then is a good faith effort to establish a formula measuring benefits in a understandable, fair and consistent manner. The use of benefit assessment districts is often attractive to policy makers because it isolates potential opposition and makes use of the principle that the primary beneficiaries of public investment pay for at least a share of the benefits they have received. Benefit assessment districts are often used to help finance downtown improvement, based on experience in Denver, Louisville, Minneapolis and -65- Portland, Oregon. They have been tied to rail transit benefits in Los Angeles, Atlanta and Miami. There have also been attempts to account for highway benefits in the Denver area, Albuquerque and Santa Fe. Los Angeles is creating special benefit assessment districts around each of 17 stations on its planned rail transit line. Private assessments will cover 5 percent of the capital cost of the project. The southern California Regional Transit District will charge 30 per square foot of space per year for buildings within each district. Office space rental in Central Los Angeles runs about $25 per square foot, so the assessment is about one percent of rental value. Downtown Denver’s benefit assessment district charges properties an annual fee involving a sliding scale based on distance from the central transitway-pedestrian mall, which covers a 14 block area in the center of Denver. Originally the district was established for the area between 15th and 17th streets along the length of the mall, and then 1984, its coverage was expanded to embrace the area from 14th to 19th streets. Thus, a large portion of the CBD is included. In Colorado, landowners are allowed to form taxing districts for the purpose of financing road construction on their land. In the Denver area, several of those districts have formed the Joint Southeast Public Improvement District to undertake a $20 million privately funded program of highway improvements. In Santa Fe, New Mexico, a benefit assessment district to account for parking improvement in the downtown areas has been the subject of detailed planning studies. Serious consideration is also being given to a benefit assessment district to cover the costs of a new loop road and additional freeway ramps in a major commercial development center in Albuquerque. In the latter case, it was -66- estimated that all of the costs could be assigned to property owners in the center with considerable benefits left over. In the former case, the proposed charges to property owners amounted to approximately 5 percent of current rents. Further, all of the required assessments were below the cost of a parking apace (calculated as $6,000 in capital coats, which was treated as equivalent to $753 per year, in turn implying an interest rate of about 12%.) Local Applications of Benefit Assessment Districts Benefit assessment districts in Texas are subsumed under the general heading of Public Improvement Districts (PIDs) which are authorized in the state by the Public Improvement District Assessment Act, Article 126j-4.12 of Vernon's Annotated Texas Statutes, originally passed in 1977 and amended in 1983. The use of PIDs in Dallas was initially entertained by the City Council in January, 1983. On April 2, 1983, the voters of Dallas approved the use of PIDa as an appropriate mechanism to fund special improvements. Dallas has not yet established any PID, but several requests are pending. The Fort Worth City Council has approved a downtown tax assessment district covering a 140 block area. Funds will be used for sidewalk and street maintenance, landscaping, promotion, transportation, security, parking and management. The first year's budget is $742,000 (Dallas Morning News, 7/23/86.) In Texas highway finance, Road Utility Districts (RUDs) and County Road Districts (CRDs) can be viewed as variants under the heading of Benefit Assessment District. Both collect revenue from beneficiaries of road construction within a well-defined district to pay for that road construction. To create a RUD, a petition must be signed by 100 percent of the landowners within a proposed district; the petition is submitted to the Highway Commission, which then creates the RUD. The RUD can acquire, construct and improve roads, -67- and pay for that activity by special fees assessed by the district, or it may issue bonds to be paid for by levying an ad valorem tax. A CRD works within the framework of the County government. The County Commissioners' Court legislates the area to be included and serves as its governing body. It issues bonds to pay for the building of roads and pays for them by an ad valorem tax on all taxable property within the district (Bahar Norris, "Road Utility Districts", North Central Texas COG, June 3, 1986.) The RUD and CRD can be viewed as benefit assessment districts because they pay for the special benefits accruing to the members of their district. However, they differ somewhat from the cases described above because they levy taxes as well as assessments (in the case of RUDs), which could be viewed as merely a question of semantics. In addition, RUDs are voluntary associations. Hence, it could be argued there is some overlap of categories: RUDs and CRDs can be viewed as classifiable under both benefit assessment districts and property taxes; RUDs can also fit under the heading of Developer Contributions Through Negotiations. As indicated earlier, there are a great many financing mechanisms, and consequently, classification systems for them will not be watertight. Potential for Increased Revenue, Benefit Assessment Districts Benefit Assessment Districts typically collect revenue from existing as well as new construction in high growth areas, with growth presumably related to improved transportation facilities. That structure of assessments is assumed in the following calculations. Office rental value asking prices in the central business district of the city of Dallas are about the same level as those in Los Angeles, at $25 per square foot, while outlying area asking price rentals range from about a third to a -68- half of the CBD levels ($8 to $12). However, because of the current "glut" of space, actual rentals, accounting for concessions, are at a much lower rate. Currently, 15¢ per square feet per year might be "most reasonable" for CBD benefit assessment, applying the Los Angeles ratio of assessment to rent. However, a somewhat higher ratio can be expected in the future as the glut of floor space is dissipated; further, a higher ratio is also possible, as in the Santa Fe case (5% was the ratio derived there). Two cases can be considered, drawing on the data of tables 7 and 8: (1) Benefit assessment districts limited to the Dallas CBD at 20¢ per square foot, applied to 40 million square feet of office space, existing or under construction, and to 2.5 million square feet of commercial space. (2) Benefit assessment districts for high growth areas other than the Dallas CBD, including the North Central Expressway Corridor, the LBJ Corridor, and the Las Colinas and Mid-Cities-high growth areas, at 10¢ per square foot, applied to approximately 70 million square feet of office space, existing or under construction, and to 45 million square feet of commercial space. Revenues obtained under those cases are as follows: ______________________________________________________________ Revenue in millions of dollars Current Increment Level Annual Projected over Source of Revenue (Annual Current 24 years to 2010 Total) Level Low - High - Annual Annual